The Subtle Art of Value Investing: A Primer for Sensible Investments

In today's fast-paced world, quick profit making schemes like day trading and swing trading are gaining popularity. However, investing in enduring companies at a reasonable price, or 'value investing', has stood the test of time and promises steady returns. Named after its proponent Benjamin Graham, the 'Father of Value Investing', this concept emphasizes the need to always make sure there is a margin of safety. Investors like Warren Buffet, Charlie Munger and Seth Klarman have demonstrated that the adoption of a disciplined, patient and risk-averse approach can lead to tremendous wealth accumulation over long periods. In the words of Buffet himself, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” What is Value Investing? Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. Value investors actively ferret out stocks they think the stock market is underestimating. They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with a company's long-term fundamentals. The overreaction offers an opportunity to profit by buying stocks at discounted prices—on sale. The Key Principles of Value Investing 1. Intrinsic Value: Value investors look for stocks that are undervalued by the market or are worth more than their current price. The intrinsic value of a company can be calculates using different methods, from analyzing financial statements to discounted cash flow models. 2. Margin of Safety: Buying an undervalued stock also provides a margin of safety for investors, as the stock’s market price has room to climb before it reaches the estimated intrinsic value. 3. Long-Term Investments: Unlike day traders, value investors are patient. They hold onto their investments for extended periods, allowing the investments to grow over time. The Bottom Line Value investing is a long-term strategy for purchase and retention of stocks, based on the concept of 'market inefficiency'. It requires a deep understanding of overall businesses, patience to wait for a significant price drop to provide a margin of safety and the discipline to sell when the price appreciates significantly. It's not a 'get rich quick' strategy, but a solid approach to build wealth consistently and with lower risk. In the words of the strategy’s pioneer, Benjamin Graham, “The individual investor should act consistently as an investor and not as a speculator.”